In a recent decision, the single bench of the Madras High Court held that the transfer of goods between two different units of a company would not constitute “sale” under the provisions of the Tamil Nadu VAT Act, merely on ground that the two units are having separate TIN numbers.
In the instant case, the petitioners, which are two units of National Textile Corporation Ltd., approached the Court praying that they could not be treated as two different entities and the transfer of yarn from one of the entity to the other, for the purpose of manufacture of cloth, which is an exempted commodity, would not amount to sale.
The respondents observed that there is transfer of cotton and cotton yarn to the other unit of National Textile Corporation Ltd. and it should be treated as sale and sale invoices should have been raised against such sales, since the units are individual mills, having different TIN numbers.Accordingly, the respondents denied exemption to the said turnover and treated them as sale and levied tax at the rate of 4% / 5% respectively.
Before the Court, the petitioners maintained that in order to attract sales tax, there should be a sale which has been defined under Section 2[33] of the TNVAT Act as transfer of property of goods by one person to another in the course of business for cash, deferred payment or other valuable consideration. In the instant case, there is a mere transfer of cotton and cotton yarn only to their own unit. It was further contended that the RC obtained by them for each of their unit clearly states that it is a unit of National Textile Corporation Ltd. Thus, all the units belong to National Textile Corporation Ltd. and transfer of goods between their own units cannot be termed as sale. Further, there is no buyer and seller in this case and this fundamental requirement being absent, it cannot be treated as sale.
While allowing the petition, the Court observed that the interpretation of the respondent-state was wrong. “there is no other discussion to substantiate the finding that the transaction should be treated as sale. When there is nothing to show that the basic elements to term the transaction as sale, in terms of the definition of sale, as defined under Section 2[33] of the Act were not fulfilled, the transaction could not have been treated as sale. There is no other material in the hands of the Assessing Officer, to come to such a conclusion that the transaction is sale, merely because the units have separate registration numbers.”
The Court, while referring to the decision in K.C.P. Limited, observed that “registration under the Sales Tax Act does not necessarily mean that the registered dealer becomes a separate legal entity different from its creator, namely, the company proper. In the instant case, there can hardly be any doubt on this issue, because the registration certificate issued to both the petitioners mentions that they are units of National Textile Corporation Ltd. This being not in dispute, ought not to have been brushed aside by the respondent.”
Read the full text of the Judgment below.
